Abenomics Shrinks Japan’s Tourism Deficit

A warm hug from a life-sized Hello Kitty recently startled a Thai tourist at Narita airport near Tokyo. The furry embrace, marking Yu Pha Da Pha Tra Prasit as Japan’s 10 millionth visitor in 2013, points to one of the very few bright spots in the latest trade data.

JNTO

Japan celebrates its 10 millionth visitor in 2013 at a ceremony in December.

It’s hard to find something encouraging to say about the record current account deficit logged for November. But hidden deep within the figures is the “tourism balance.” It’s calculated as the difference between how much foreign visitors spend in Japan and what Japanese spend abroad – and it is shrinking.

While the overall current account – the broadest balance of Japan’s trade with the world – has fallen into a deficit in the past two months, the tourism deficit has continued to improve. Though it is only a small part of the current account, any positive factors help, economists say.

The tourism balance has been deep in the red for decades as a sheer function of numbers. In the late 1990s, over four times as many Japanese traveled abroad as foreign tourists came to Japan, according to the Ministry of Justice. A strong yen at the time made foreign travel relatively cheap for Japanese, while at the same time making tourism in Japan more expensive.

But the dramatic weakening of the yen over the last year has made Japan a much cheaper destination. A new push by the Japanese government to attract tourists through measures including an easing of visa restrictions is also helping reverse the trend.

In November, the tourism deficit shrank 36% on year, as spending by visitors to Japan increased. That was the 10th consecutive month the deficit narrowed.

The government is aiming for 20 million foreign visitors by 2020, and 30 million by 2030. But even if those numbers help Japan to post a “tourism surplus” sometime in the future, that won’t be enough to compensate for the possibility of a lasting trade deficit. The ¥121 billion ($1.2 billion) that foreign tourists spent in November was only 2.2% of what Japan exported in the reporting period.

Still, Dai-ichi Life Research Institute’s Hiroshi Sakuma pointed out in a recent report that an influx of foreign tourists, and potentially more students from abroad and business-related visitors, will be good for the economy in the long run.

“It’s better to avoid (an economic recovery) on special demand that just happens when the yen weakens,” he wrote, noting a recent Bank of Japan survey that showed a recovery in some regions led by the tourism industry.

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Japan Real Time is a newsy, concise guide to what works, what doesn’t and why in the one-time poster child for Asian development, as it struggles to keep pace with faster-growing neighbors while competing with Europe for Michelin-rated restaurants. Drawing on the expertise of The Wall Street Journal and Dow Jones Newswires, the site provides an inside track on business, politics and lifestyle in Japan as it comes to terms with being overtaken by China as the world’s second-biggest economy. You can contact the editors at japanrealtime@wsj.com